A Historical Perspective on Mexico's Oil Expropriation: Lessons Learned

Explore the impact of Mexico's oil expropriation on its oil industry and the challenges faced by PEMEX. Gain insights into Mexico's oil industry and its future outlook.

A Historical Perspective on Mexico's Oil Expropriation: Lessons Learned
A labor conflict in the 1930s was one of the factors that led to Mexico's oil expropriation in 1938. Credit: UNAM

Nowadays, the subject of the expropriation "is becoming more and more distant"; many people do not even know about that moment in Mexico's history, and, as years go by, it has been proven that the idea that "the oil is ours and we all benefit from it", has not yielded results, considers María del Carmen Eugenia Reyes Ruiz, an academic at the Facultad de Estudios Superiores (FES) Acatlán, María del Carmen Eugenia Reyes Ruiz.

In an interview, on the occasion of the 85th anniversary of the Oil Expropriation -occurring on March 18, 1938- the university professor suggests going beyond the primary school monograph and researching this historical event, "without wrapping ourselves in the flag of crude nationalism, and worrying about where the discourse about oil has taken us and brought us and, above all, looking for better options for the future, without falling into simplistic or preconceived ideas. The more we know, the more we will be able to form our criteria and opinion, and based on that, act and demand that the authorities do what is necessary for the benefit of all Mexicans".

We must become aware of the reality of the oil industry in the world and of our own, of the management that has been made of the state-owned company, and learn how to manage the remaining resources; otherwise, it will become a topic of the past, for history, in Reyes Ruiz' opinion.

In evaluating the oil sector in Mexico, the university professor considers that if measures are not taken, the outlook for Petróleos Mexicanos (PEMEX) is complicated, because much of what it has earned has not been capitalized to have better facilities and technology to guarantee that it can continue to exist.

Reyes Ruiz refers that Mexico has 9.34 years of proven oil and gas reserves, as revealed by the National Hydrocarbons Commission. Likewise, new deposits were located in the middle of the Gulf of Mexico basin.

However, after all these years of national sovereignty, oil wealth, and productivity of the company, there has been no investment in technology to carry out deep drilling as required to extract the crude oil.

Another of the problems faced by the state-owned company, according to the academic, is its labor liabilities. Recently it reported profits, not because it has produced more and better oil, but because of the increase in the price of energy. In 2022 its profit was just over 23 billion pesos; its debt, as of December 31 of that year, was 107.7 billion dollars.

The History and Background of the Oil Expropriation in Mexico

It is often thought, says María del Carmen Reyes, that the oil expropriation was a one-time event that took place on March 18, 1938, as a result of the actions taken by then President Lázaro Cárdenas.

"It would seem that on the night of March 17, he came up with the idea that it was important for the country to have the oil wealth in his hands. In reality, the process that led to the expropriation decree began much earlier and was linked to a labor conflict in the oil companies that were in Mexico at that time".

These were 17 different companies -founded by foreign investors, particularly from the United States, England, and Holland-, which had been present in Mexican territory for years. "The first time that oil began to be extracted and concessions were granted for its exploitation was during the Empire of Maximilian, in 1862, although during the Porfiriato they were expanded to attract greater investment," he indicates.

The peak of oil production in those years was in 1921, with almost 110 million barrels of oil per year, a figure that was not reached again until the 1980s. In that industry, workers worked hard and earned little.

From 1932 to 1934, the workers' unions began to take shape and formed groups such as the Confederación de Trabajadores de México, a workers' union founded on February 24, 1936; earlier, in 1935, the Sindicato de Trabajadores Petroleros de la República Mexicana (Oil Workers' Union of the Mexican Republic) was also formed.

The companies were obliged to increase salaries because it was detected that they were "making up" their profits; a sentence was obtained so that the workers would receive millionaire indemnities, but when no response was obtained, the workers went to President Cardenas, who considering the refusal of the oil companies and the international context (pressure from the governments of the USA, England and on the eve of the beginning of the Second World War), decided that it was time to apply the 1917 Constitution, recalls the historian.

The Magna Carta established: "The Nation has direct control of (...) the products derived from the decomposition of rocks when their exploitation requires subway works; phosphates susceptible of being used as fertilizers; solid mineral fuels; oil and all solid, liquid or gaseous hydrogen carbides". Thus, at the beginning of March 1938, the amount of compensation to be received by the expropriated companies began to be determined.

A combination of circumstances resulted in the oil expropriation where the idea of national unity was reinforced; "we have seen the photo of the lady with her little hen, together with another one, donating her jewels" to pay the debt to the companies.

With what was donated by the people, according to official figures, a little more than three million pesos were collected. "Considering that only one company ended up paying 34 million pesos, it was a rather symbolic contribution," but the image served in the following decades to give the idea of the people rallying around their president.

President José López Portillo assured in 1976 that Mexico had to get used to "administering abundance", after the discovery of the Cantarell oilfield in Campeche. That and others were only speeches, and the impact on the people was only to promote nationalism. "We wonder why, being an oil country, gasoline is so expensive, or why we import so much of this fuel", concludes the university student.